Amazon unveiled its long-awaited credit card reader on Wednesday, pitting it against Square and other companies in the battle to provide small businesses with an easier and cheaper way to accept credit card and debit card purchases. And, as has been the Amazon way, the online retailer is charging a lower price than its competitors to try to give it an initial edge.
Brick-and-mortar businesses that purchase the device and sign up for Amazon’s payments service by Halloween will only pay 1.75 percent on card transactions through the end of 2015. The rate will increase to 2.5 percent in 2016. Square, for its part, charges 2.75 percent, though its website suggests it charges lower fees for businesses that bring in more than $250,000 in annual sales. PayPal charges 2.7 percent.
A Square spokesman took the this-validates-the-market approach in the company’s response: “We’ve long been focused on building a complete register service for local businesses. This reinforces our mission and shows the demand for all of our services.”
Said a PayPal spokeswoman, “Payments isn’t just about the swipe, it’s the experience, and PayPal has always strived to bring retailers new and better experiences for them and their customers. PayPal is committed to enabling merchant growth and not competing with them.”
Amazon is charging $10 for the card-reading dongle, which can be plugged into iOS, Amazon and a handful of Android phones and tablets to accept payments through an app called Amazon Local Register. The app will include features to help business owners track sales.
For anyone who follows Amazon, the fact that the company is charging a price well below a competitor’s is not surprising. Payments industry sources have told Re/code over the past year that Amazon’s entrance into the world of offline commerce — with the card reader and point-of-sale app serving as the core — is a long-term game. Amazon is willing to lose money in the short run to poach business customers from competitors and move them deeper into the Amazon ecosystem.
Once acquired, Amazon can sell these new business customers on buying supplies from Amazon and potentially selling their goods on the Amazon marketplace. Amazon is already offering small discounts to business owners who order the card reader bundled with other equipment, such as a case for an in-store tablet or a cash drawer. Amazon will probably make the app compatible with its daily deals service too, which will put it into competition with Groupon’s new Gnome point of sale product. The initiative also could provide Amazon with a valuable set of data on brick-and-mortar sales.
Re/code first reported in January that Amazon was planning to introduce a checkout and payments system and that it was considering offering a suite of software for business owners that might include everything from inventory management tools to accounting software.
“The goal is to make this new collection of tools and services as critical to brick-and-mortar shops as its Amazon Web Services offering has become to online businesses,” I wrote at the time.
Amazon spokeswoman Julie Law said on Wednesday that Amazon would be adding more software capabilities to the Amazon Local Register app “very soon,” but declined to elaborate.
While some small businesses will certainly switch point-of-sale and payments providers for a much cheaper price, Amazon will still have a tough battle against Square. Despite the noise around the company and some of its missteps, Jack Dorsey’s payments company has been at this for years and already has a customer base of over a million business owners. In recent months, Square has been introducing new services, such as a merchant cash advance program, to provide more value to its existing customers. Amazon could also face concerns from potential business customers who view it as a competitor.
Early reviews on Amazon have not been kind, with eight out of 12 reviewers giving the device a one-star rating. That said, the negative reviews are mostly focused on the annoyance of having to create a new account, if a business owner only has a regular Amazon account, as well as the models of devices listed on the compatibility list. Additionally, the current device does not support a more secure type of payment card, called chip cards, which will become more popular in the U.S. over the next year as merchants are pushed to upgrade their point-of-sale systems.